US Feed Outlook - December 2009

The use of corn to make starch, sweeteners, ethyl alcohol and other industrial products has accounted for most of the growth in China's corn use over the past decade, according to this month's <em>Feed Outlook Report</em> from USDA Economic Research Service. The report <em>China Is Using More Corn for Industrial Products</em> is by F. Gale, F. Tuan, X. Wang and Z. Cao.

Despite the surge in industrial use, China still has a surplus of corn. The country's exports of corn-based industrial products have grown as exports of unprocessed corn receded. Industrial processing was encouraged by government policy early in the decade. Industrial processors in China benefited from policies that kept domestic corn prices from rising in 2007/08 but many experienced losses in 2008/09 when demand slowed and the government supported corn prices.

China is the world's second-leading consumer and producer of corn, accounting for 19 per cent of world consumption in market year 2007/08 (Figure 1).

Figure 1. China and the United States accounted for over half of world corn use in 2007/08
Note: 2007/08 market year (China: October-September; United States: September-August).
Source: USDA, Economic Research Service using USDA, Foreign Agricultural Service, Production, Supply, and Distribution estimates. Accessed in February 2009.

In past years, China was a leading exporter of corn but its exports fell from a peak of 16 million metric tons (mmt) in calendar year 2003 to less than 1 mmt in 2008. To date, the country is not a significant corn importer but many market analysts expect this may change as a result of China's rising consumption.

The rapid growth of industrial processing of corn makes it difficult to assess China's corn market. About one-quarter of China's corn now enters industrial processing, which yields hundreds of food, feed, alcohol and chemical products.

Estimates of corn use from analysts in China indicate that the share of corn used in industrial processing may be higher than currently estimated by USDA and is already at or above the share in developed countries. Estimates are complicated by the large number of products and co-products and the lack of statistical information on these industries.

This report describes the recent growth in industrial use of corn in China. It also reviews unpublished estimates of corn use from Chinese analysts, describes government support for industrial processing, and summarises trends in corn product exports and prices.

At first glance, growth in both industrial use and feed use of corn would be expected to raise demand to a level that will soon turn China into a corn importer. More careful analysis, however, shows that China still had a substantial surplus of corn in the 2008/09 market year (October-September) despite the rise in industrial use. The rapid rise in processing capacity was encouraged by government policies and outpaced the robust growth in domestic demand for corn-based chemicals, food and feed additives. Faced with excess capacity, many producers sold their products on the international market, and helped trigger a worldwide boom in imports of industrial corn products.

At the same time, China's exports of unprocessed corn declined. Growth in industrial processing of corn slowed as the industry's excess capacity became apparent.